UNCTAD proposal would enable nationals working abroad to transfer knowledge and to invest in home countries

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UNCTAD/PRESS/PR/2012/038Geneva, Switzerland, (25 November 2012)

Educated and highly qualified nationals of the world’s poorest countries who have left to work elsewhere could counter the “brain drain” effect on their home countries by contributing to knowledge transfer and channelling investment back home, a new UNCTAD report says. It estimates that such emigrants now number over 2 million.

The “brain drain” statistics for the world’s 48 least developed countries (LDCs) are stark: among people from LDCs with a university-level education, about one in five leaves for employment elsewhere, as compared with one in 25 in the case of developed countries. The brain drain rate is highest of all for the LDCs, at 18.4 per cent; this is well above the 10 per cent rate for other developing countries, the Report says. Six of the 48 LDCs have greater numbers of highly skilled nationals living abroad than at home.

The total of such LDC emigrants stood at 1.3 million in 2000 – up by 58 per cent from 1990. By now the figure is estimated to have exceeded 2 million. At these high levels, the Report argues, the adverse effects on LDCs can outweigh the benefits from remittances – that is, the billions of dollars that these workers send home to their families every year (see UNCTAD/PRESS/PR/2012/37). The Report says that brain drain tends to reinforce international inequalities in the availability of qualified personnel, and to damage LDCs’ prospects for long-term economic growth.

To counter these negative effects, UNCTAD proposes a new international support mechanism aimed at enabling highly skilled members of LDC diasporas to contribute to specialized knowledge transfer and to channel investment to their home countries.

The proposed knowledge-transfer scheme – to be called “investing in diaspora knowledge transfer” – consists of a financial instrument that would target nationals of the LDCs who live and work in foreign countries. It would seek to enlist members of this group who “are willing to invest in knowledge creation and learning in home countries”. It would aim to enhance potential benefits from members of the diaspora who “have expertise in a specific field with high knowledge content which is amenable to enterprise development and could contribute to building productive capacities” in their home countries, especially in middle- to high-level technology industries (e.g. machinery, ICTs, biotechnology) and skill-intensive activities (e.g. engineering, consultancy). The term “productive capacities” refers to the ability of an economy to produce competitively greater varieties of goods and services, of greater sophistication. UNCTAD has contended for some years that improving LDCs’ productive capacities is the key to enabling them and their populations to achieve long-term economic growth and to escape poverty.

The international support mechanism proposed by the Least Developed Countries Report 2012 is intended to reduce the risks generally encountered by diasporas in initiating investment in their home countries. For example, it would provide diaspora members with preferential access to the seed capital required to initiate investment back home, and such financing would be available at preferential interest rates. Governments could also provide loan guarantees for such investment, the study says.

Multiple sources of financing may be required to raise adequate funds, the Report says. It notes that skilled emigrants from LDCs live mainly in developed countries. The funds needed to launch the scheme could be raised from developed countries and other countries in a position to contribute to such funds, and from international and regional financial institutions, it suggests.

Overall, it is clear that there is a need for a special plan to motivate skilled LDC diaspora members to help build the knowledge bases and innovative capabilities of their home countries, the Report says. It suggests that the proposed mechanism could be operated by regional development banks such as the African Development Bank, the Asian Development Bank and the Inter-American Development Bank, working closely with national development banks. The particulars of the scheme would have to be elaborated in greater detail and through future research, the Report says.

Several LDC governments have made efforts to harness the potential of their diasporas to provide knowledge and technology that can be used at home, but to date these attempts have yielded meagre results. New industrial policies and strategies are needed, the Report says, and they should be designed taking into account the skills and abilities of emigrants. Among other possibilities, there is potential to design effective diaspora knowledge networks, the study notes.

The Report recommends that diaspora knowledge networks – along with business associations and academic networks – become search mechanisms for linking individuals with relevant institutions, thus creating knowledge networks. These could be used to establish what a country is good at producing.

To strengthen the knowledge-sharing aspect of investment projects initiated through the new scheme, and to spread the benefits from them to domestic agents through linkages, joint ventures with local firms would be encouraged. In this way, the schemes would serve as catalysts for knowledge diffusion and sharing. For their part, domestic partners would contribute to these joint ventures their knowledge of local business conditions, along with their contacts through domestic business networks, the Report recommends.

The proportion of university-educated to low-skilled labour is ten times higher in developed countries than in LDCs, the Report notes. In the world’s poorest countries, for every person with tertiary-level education, there are 42 people with fewer years of formal education. This skill imbalance is already constraining the development prospects of LDCs, and it has major adverse consequences for LDCs’ efforts to diversify their economies. The Report cautions that unless the current trends in brain drain are offset, the LDCs, with their deep structural constraints, could struggle to sustain their currently strong growth rates.

The study says that brain drain is worst in sectors such as health and education, and where entrepreneurs require an intense use of science and technology. Brain drain causes great damage to impoverished countries by removing the very people who could most help in stimulating economic growth. The issue is even more of a concern now, the Report asserts, because LDCs are being left behind as the global economy grows and technology rapidly advances. Such countries must industrialize and do so quickly. They must also keep up to date with and adapt technologies that will raise living standards while also protecting the environment. The damaging effects of climate change, for example, are being felt disproportionately in LDCs. Skilled, highly educated citizens are needed to cope with such challenges, the Report contends.